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ARTHUR BERMAN
Arthur E. Berman is a petroleum geologist with 36 years of oil and gas industry experience. He is an expert on U.S. shale plays and…
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Ignore The Hype – Oil Prices Aren’t Going Back To $100

By Arthur Berman - Sep 30, 2018, 6:00 PM CDT
The breakout in Brent crude prices above $80 this week has prompted analysts at the sell side banks to start talking about a return to $100 a barrel oil. Even President Trump has gotten involved, demanding that OPEC ramp up production to send oil prices lower before they start to weigh on U.S. consumer spending, which has helped fuel the economic boom over which Trump has presided, and for which he has been eager to take credit.
But to hear respected petroleum geologist and oil analyst Art Berman tell it, Trump should relax. That's because supply fundamentals in the U.S. market suggest that the recent breakout in prices will be largely ephemeral, and that crude supplies will soon move back into a surplus.
Indeed, a close analysis of supply trends suggests that the secular deflationary trend in oil prices remains very much intact. And in an interview with MacroVoices, Berman laid out his argument using a handy chart deck to illustrate his findings (some of these charts are excerpted below).
As the bedrock for his argument, Berman uses a metric that he calls comparative petroleum inventories. Instead of just looking at EIA inventory data, Berman adjusts these figures by comparing them to the five year average for any given week. This smooths out purely seasonal changes.
And as he shows in the following chart, changes in comparative inventory levels have precipitated most of the shifts in oil prices since the early 1990s, Berman explains. As the charts below illustrate, once reported inventories for U.S. crude oil and refined petroleum products crosses into a deficit relative to comparative inventories, the price of WTI climbs; when they cross into a surplus, WTI falls.